What Is Money?

A scam, obviously

Mention Bitcoin, and most people’s first reaction goes something like: it’s a scam, it’s fake, it’s virtual, it doesn’t exist — some speculative lottery ticket, online gambling wearing a costume. It seems impossible to understand how a string of code — a string of numbers, a thing with no body in the physical world — could ever break past $100,000 apiece. At first glance, everyone buying Bitcoin appears to have lost their minds. Bitcoin has no physical form, pays no interest, and no nation uses it at scale — it looks exactly like a Ponzi scheme, robbing Peter to pay Paul, destined to go to zero one day. That would only be cosmic justice.

Those were my own words, more or less, before I actually studied Bitcoin around 2022. But after an education in the future of money, a thought began to sprout: this Bitcoin thing probably works — it just isn’t my generation’s problem. It might be the currency my grandchildren use. Nothing to do with me; odds are I won’t live to see Bitcoin widely adopted. So I shelved it and went off to explore other things.

Today I’d like to amend that earlier thought. Mass adoption may indeed wait for my grandchildren’s generation — but as the “grandfather,” my job is to buy in early and leave it to them. Because by the time they are old enough to buy it themselves, the price will be far beyond anything they can imagine.

Bitcoin as a teacher

Bitcoin is an exceptionally good teacher. It forces everyone who accepts it to start questioning — questioning the habits we take for granted, questioning the “reality” we have always assumed to be true.

Money? Or a ledger?

First question: what is money? Money has three classic functions — a medium of exchange, a unit of account, and a store of value. That’s the standard economics definition, and like most economics, it sounds drier than it should. I’ll unpack each one slowly. But before we begin, let me throw out a counterintuitive framing: money is an entry in a ledger — a record of what you have contributed to society, and what you may claim back from it.

Zoom in to a village. I weed the Zhang family’s field and earn 3 Zhang-family coins — at that moment, the Zhang ledger records “3 coins out,” and mine records “3 coins in.” I take 1 coin to the Li family for apples, and 1 to the Wang family for cabbage — my ledger says “2 out,” and the Li and Wang ledgers each say “1 in.” Notice that the coins never really vanish; they simply flow between the villagers’ ledgers. At its core, money is a way of expressing debt relationships, and currency is money’s physical carrier.

The Medici of medieval Florence were the pioneers of treating debt itself as money. In cross-border trade they discovered that debt could circulate in place of actual treasure. Suppose an English merchant owes the Medici 500 gold coins, and the Medici buy 500 gold coins’ worth of wine in France. Rather than escort 500 physical coins across bandit country, why not trade the IOU? The Medici hand the paper that says “an English merchant owes the Medici 500 gold coins” to the French wine seller — and the deal is done. The gold never moves. Money becomes an exchange of debts, and currency becomes a slip of paper.

The three layers of money

Going straight to the essence — the “money” we think we know is actually three stacked concepts:

At the bottom: the ledger — recording every “who owes whom, and how much.”
In the middle: money — the abstract expression of those debt relationships.
On the surface: currency — money’s physical form. It can be banknotes, a bank balance, gold and silver, even a string of digits.

The power to keep the books

From this we can deduce something uncomfortable: whoever controls the ledger controls money itself. And controlling money means steering human behavior. Bookkeeping power is one of history’s great hidden powers — school never teaches students what money is, what makes ledgers marvelous, or what real power looks like.

The ledger has evolved through history roughly like this: the oral ledger (early village trade among people who knew each other) → the physical ledger (gold and silver: three coins in my pocket simply are three coins — the metal itself is the ledger) → the credit ledger (fiat under the gold standard, before the watering-down) → the government ledger (the fiat we use today: your balance is kept by commercial banks, the commercial banks’ ledger is kept by the central bank, and the central banks answer to the Bank for International Settlements). Layer by layer, the ledger we depend on for survival was peeled out of our hands. Bookkeeping power drifted quietly to a small number of people — while the public was trained never to look at it.

And so people live in permanent pursuit of money, inside a systematic worship of it, without ever understanding what it is.

The anchor

Let me insert a note here, because very few people truly understand the terms “anchor” and “gold standard.” (In Chinese this is made worse by reflexive, literal translation — words people recognize but never actually grasp.)

So what is the gold standard? What is an anchor? In one word: trust. Trust in what? Trust that your currency converts to hard money at a fixed ratio — a mechanism that forces the issuer to keep its promise not to overprint. After World War II, the United States unified global money around the dollar: everyone uses my currency, and I promise that a fixed number of dollars redeems a fixed amount of gold (you can swap dollars for gold any time — trust me). Why does this matter? Because gold is scarce and fiat is abundant (in principle I can print as much as I please) — but I have volunteered gold as the measuring stick of my currency’s value: say, 35 dollars to one ounce. Gold’s scarcity guarantees the punishment: if the government overprints, people really will show up and swap 35 paper dollars for the ounce, and the government loses real treasure. So the government must restrain itself — overprinting means watching your gold walk out the door, leaving the nation poorer.

An example. Suppose I issue a currency called the Lamp Coin, anchored to gold: 10 lamp coins = 1 gold coin. My vault holds 10 gold coins, so I issue 100 lamp coins — every lamp coin is backed by real metal, and anyone can come redeem at any moment. I can always pay.

Now suppose greed gets me, and I quietly print 100 more. There are 200 lamp coins circulating, but still only 10 gold coins in my vault. Sharp people notice quickly that the paper in their hands is no longer fully backed — and the rational move is to run, not walk, and redeem for real gold. Before long my vault is empty, 100 lamp coins are still outstanding, and I am carrying debts I can never honor.

The weakness in human nature

It works exactly the same at the level of nations.

But humans are forever greedy, and no one — no one — can resist the money printer. It is more seductive than any drug on Earth. Flip one switch and money appears from nothing; no opioid can compete with that feeling.

And so, in 1971, President Nixon announced that the dollar was decoupling from gold, and humanity formally entered the era of the pure government ledger — no anchor, no hard binding, the value of money decided entirely by the state. Currency escaped the test of the anchor, and the age of printing at will began. (They had also accumulated plenty of physical gold, partly to make sure a folk gold standard could never stage a comeback — physical gold is inconvenient stuff, hard to carry through customs.) The government seized the printer completely, kicked away gold the measuring stick, and confiscated what it could.

From 1971 onward, we are required to trust the government — to trust that a piece of paper, printable at will, holds value. And until 2008 that paper kept both its value and its monopoly unchallenged. You had no choice: accept my currency, or a carrier fleet shows up outside your door for a friendly chat.

Take the 2003 Iraq war — on the surface a crusade for democracy against a wicked dictator; in practice, Saddam had begun settling oil in euros, and received the democratic iron fist of Uncle Sam. Or take Gaddafi, who dared to plan a “gold dinar” — a gold-anchored pan-African currency for settling oil. That threatened interests far too real, so Gaddafi had to physically disappear.

Since 1971 the dollar’s purchasing power has collapsed: one 1971 dollar ≈ 0.13 of a 2024 dollar — roughly 87% gone. And understand: the dollar is the best-behaved, most creditworthy, most stable currency this world has. If that currency lost more than 80% of its value, what of the others?

Over the same stretch, an ounce of gold went from $35 to over $2,000 — sixty-fold. That is the charm of a measuring stick: it lets people see the leak. It used to take 35 dollars to buy the ounce; now it takes 2,000. Gold did not get more precious — gold is just gold, the constant ruler. It is the currency being measured that suffered a breathtaking evaporation.

In the history of finance, “fiat holds its value” has never once been true.

Money as a language

“What does any of this have to do with me?” someone will ask. “I trust the dollar and the United States government. This is interesting history, but I don’t accept that it touches my life.”

Fine. Let’s keep pulling the thread.

The dollar, as everyone knows, is the global currency — the settlement layer beneath the world’s finance. International trade is priced in dollars and settled in dollars. That involves two of money’s three functions: unit of account and medium of exchange.

Medium of exchange first. Money is, at its essence, a language — a language of value. In America I speak English because English is the medium most Americans accept: I say Hello, they say Hello back. If I greet people with “你好,” no one engages — we are not speaking the same language. Money works identically: if I trade in dollars and you accept dollars, dollars become our shared medium of value. If I try to pay Americans in Zimbabwean dollars, no one accepts — and then even hundreds of billions of Zimbabwean dollars do me no good. Currency is a language for exchanging value; the moment we both accept it, value can flow. It is a consensus.

Money as a unit

Money’s second function: unit of account. How to understand that? Start with “unit.” The meter is a unit of length, the second a unit of time, the kilogram a unit of weight — money is the unit of price. If I go shopping for a three-meter sofa, I know in my bones that three meters is three hundred centimeters, about one and a half of my arm spans, so I skip everything obviously shorter or longer. That is how we communicate about length.

But anything that serves as a language, as a unit, must satisfy one requirement: constancy. Why must units be constants? Because only constants allow communication. If a Chinese meter didn’t equal an American meter, merchants of the two countries simply could not trade. Three meters in 1990 equals three meters in 2026 equals 300 centimeters — and I am confident that in 3026, three meters will still be three hundred centimeters. Weight, likewise: a kilogram in 1800 equals a kilogram in 2026 equals 1,000 grams. A minute in 1500 equals a minute in 2040 equals sixty seconds. These are fixed constants. If they shifted — if next year a meter were 113 centimeters and the year after, 134 — we would lose our grip on length entirely, no? (And I’d never get my sofa. Tragic.)

By analogy: the unit of value, the language of value, ought to be constant too. A 1900 dollar should buy what a 2026 dollar buys. The reality is the opposite — fiat depreciates continuously. Which produces the problem above: when the language of value never stops shifting, our perception of value goes haywire (just as arbitrarily redefining the meter would destroy your sense of three meters). We lose the ability to judge what anything is genuinely worth.

Gold, for example. Today’s instinct says: gold has gotten so expensive, I can’t afford it. But that’s backwards — gold didn’t rise; the currency we measure with shrank against it. The value-language we depend on is simply wrong, and our perception of worth is in continuous, quiet freefall with it.

Something isn’t right

In the early years of China’s reform era there was a famous term: the wàn-yuán-hù — the “ten-thousand-yuan household.” A family with ten thousand yuan! They had dared to plunge into business, earned their fortune, and were admired by everyone: life’s winners, the village millionaires. What is a 1980 ten-thousand-yuan household in today’s terms? By purchasing power, 1980’s ¥10,000 ≈ ¥2–3 million today. The “ten-thousand-yuan household” of that era was, in our money, the “three-million-yuan household.” Where did the missing couple of million go?

And now? Ten thousand yuan? Earn less than ¥10,000 a month in Beijing or Shanghai and your quality of life is grim — at ¥10,000 a month you may not even clear rent. “Ten-thousand-yuan household” has slid from life’s winner to barely scraping by.

Same story one generation closer: my parents, as children, could trade one fen — a hundredth of a yuan — for several candies, and a few more fen bought a popsicle. By my own childhood the fen was no longer money at all; a few jiao could still buy a few pieces of bubble gum at the mining-town shop, and nothing on Earth was cheaper than that. And the kids born after 2020? In a shop today, one yuan buys them — perhaps — a plastic bag. Ask yourself: in a country with no regime change and relatively stable monetary policy, purchasing power can rot at this speed? Come 2040, will one yuan not even buy the bag?

This is a brutally practical question. The money I trade my life, time, energy, and suffering for is depreciating fast — so what exactly am I earning? In my father’s generation a worker making ¥40–60 a month could roughly support a family. Today people earn ¥4,000–6,000 and reach month’s end with nothing saved, struggling to feed themselves, with marriage and children out of the question. Wages rose a hundredfold, and the quality of life went down.

And let the reader remember: everything above describes a country whose regime never changed and whose monetary policy counts as stable.

How do you store value?

Money’s third function — the most important one — is the one deliberately left in the shadows: money as a medium of value storage.

Among the many virtues of Chinese and East Asian culture is preparedness: borrow little, consume modestly, save much. It is an excellent operating system — civilization advances because of saving. Every coin spared today is stored against the future: the children’s education, a family of one’s own. It is practically an East Asian instinct. We are not a culture of splurging.

Yet East Asia now has the steepest birth-rate collapse on the planet. Why? The causes are complex, but let me offer one hidden thread. East Asians treat family continuity as sacred, so they start saving early — and the saving is for the descendants. Now imagine the bank balance climbing while the money’s true purchasing power keeps draining away. That contradiction can drive a person quietly mad, because the phenomenon cannot be understood from inside: I saved so much — why can I afford so little? If the money in my account can barely keep me alive, why would I have a child? If everything I earn will have melted by the time I might raise one, why strive at all?

I strove and strove — health gone, time gone, spirit burned through — and received no wealth, only subsistence. Under those conditions, what is the optimal strategy?

Answer: lie flat. Have no children.

The illusion of scarcity

So why can’t fiat — why can’t the bank account — store wealth? The answer is one line: because fiat is not scarce.

Everything valuable obeys the old wisdom: rarity makes preciousness; the scarcer, the better it holds. Hence the universal instinct to buy gold. Why gold? Scarce, unforgeable, steadily and slowly produced. Buying gold is buying the genuine hard currency. People know in their bones that gold preserves value — but few ever flip the question: why does money fail to preserve value unless I flee it for gold?

Currency debases for exactly one reason: printing. Fiat is utterly non-scarce paper. When the powers that be want a few hundred billion, they tap a keyboard (these days they skip the paper entirely — conjuring a trillion on a screen could not be easier). The savings you sweated thirty years for, they can summon from nothing in a few keystrokes.

Your 30 years = their 0.3 seconds.

Which forces a conclusion: if the money you trade life, energy, and labor for can be printed at will by someone else — then you are a slave.

Two percent, every year

Of course, they will never stand at the podium and say it straight: “We’re going to print now — diluting and silently harvesting your wealth.” No, no — far too inelegant. At the Federal Reserve press conference it sounds like this: “Given current conditions, we have responsibly anchored inflation at 2%. We have defended your purchasing power. We are the angels; kindly express your gratitude.”

Much more soothing, isn’t it? Only 2% inflation. Sounds tiny. What’s 2%?

Unfortunately, most people understand neither inflation nor compounding. School teaches it as a vocabulary item: inflation means prices rise. Memorize it, don’t examine it. Inflation = prices go up — recite it, never understand it.

Let me poke through the paper window: inflation is printing, and printing is the nakedest form of plunder. What makes 2% terrifying is not the number — it is two properties:

First, it is 2% per year. Not once — every year, compounding. Year two doesn’t subtract 2% from your original million; it subtracts 2% from the 980,000 you had left. Year three bites the 960,400 that survived… each year takes its bite from the remainder. Accumulated, it is no small sum.

Second, it is 2% of your total assets. Not 2% of your salary — 2% of your house, car, stocks, bonds, deposits: everything denominated in fiat is diluted simultaneously.

Allow me to translate “a gentle 2% inflation target” into plain speech: each year we will take 2% of everything you own. No legislation required, no audit, no deficit reduction — I take it because I say I will, and there is nothing you can do, unless you stop using my money.

Compound interest

Compound interest is the eighth wonder of the world. He who understands it, earns it; he who doesn’t, pays it.

Let’s make it concrete. You are 30 with 1,000,000 in savings. The central bank promises a steady, gentle 2%. Watch what happens by the time you retire at 60:

You read that correctly. Under “benign, stable, healthy” 2% inflation, the million you saved keeps only 550,000 of purchasing power after 30 years.

And that is the polite arithmetic — before counting how inflation “appreciates” housing, medicine, and education while wages stall, grinding quality of life down year after year.

You work a lifetime, set aside your pension, retire in peace — open the wallet and find half of it quietly gone. No robbery, no police report, no criminal record. All of it perfectly “legal.”

This is what central banks call moderate inflation.
This is the majesty of the printing press.

Try it yourself · The purchasing-power time machine

Tables are abstract; time is concrete. In 1971 the dollar left gold, and printing never again required collateral. In the interactive lab you can drag a timeline to your birth year and watch how many loaves of bread $100 still buys — next to a progress bar that never moves: in another system, there is a number nobody can edit.

“But my apartment went up!”

Naturally someone objects: hold on — didn’t my Beijing or Shanghai apartment appreciate? I bought at 3 million, it’s 5 million now. Didn’t I make 2 million? Doesn’t that hedge the inflation perfectly?

Yes — and no. On paper, yes: 2 million more, looks great. But three key things are missing.

First, the house rose — and so did everything else. In 2000, a Beijing apartment ran 3 million and a family’s monthly groceries ran 500. In 2026 the same apartment is 7 million, but the groceries are 5,000 a month. The house rose 2.3×; daily life rose 10×. The “paper profit” never even caught up with the food bill. Asset up 2 million, total cost of living up 2 million — net, you ran in place. The trap: you are still measuring everything in the same fiat.

Second, real-estate appreciation is itself an inflation artifact. Imagine a world without inflation: why would houses appreciate at all? Through China’s decades of reform, construction never stopped — enormous new living space came online. More supply should mean lower prices. Outside a handful of genuinely scarce locations — Chang’an Avenue, the Bund — we should have seen broad price declines (especially given China’s ghost towers and unfinished buildings). Instead prices rose. Deeply counterintuitive — until you recall which ruler we were measuring with. The shrinking yardstick manufactures the feeling of “profit.” The ruler moved, not the house.

Third, there is nowhere to run. People are clever; we all dimly sense the melting and instinctively swap money for something — apartments, gold, stocks, watches, handbags, wine. Every one of those instincts is correct, and every one is insufficient. As long as you still price in fiat, you are still inside fiat’s force field.

The house doubled? Did the house rise, or the currency fall? Gold did 60×? Did gold rise, or the currency fall? With what ruler will you measure the “real gain”? You do not own a single uncorrupted ruler.

That is the exquisite genius of the fiat system — it doesn’t merely tax your savings; it confiscates your ability to measure value at all. You think you are hedging inflation; in truth you are measuring one shrinking ruler with another shrinking ruler. You never left the system. You only changed the posture in which you are harvested.

This is the majesty of the printing press.
This is the seamless garment of fiat.

But — do we simply fold our hands and accept the shearing?

Absolutely not.